We must now turn to another development which strongly influenced the main classical approach to the problem of saving. Adam Smith’s propositions that ‘what is annually saved is … as regularly consumed’, with its implied denial of the likelihood of hoarding, received a powerful reinforcement from the development of the argument that, in the last analysis, supply was the source of demand and that aggregate production was, so to speak, its own market. The originator of this proposition was the French economist, J. B. Say, from whom it received·the somewhat pretentious title of the ‘Law of Markets’ (Loi des Debouches) and after whom, in modern discussions, it has often been called Say’s Law.
The original statement in the Traite d’Economie Politique is a good deal less rigorous than some of its applications by subsequent writers. Say recognised the possibility of hoarding – there is a footnote reference thereto on the third page of the chapter in which the so-called Law is set forth. But, although he does not specifically say so, his argument assumes that for practical purposes this can be ignored. He begins by recalling the view frequently expressed by business men that their difficulty lies not in the production but in the disposal of their wares.
He comments on this that there cannot be a demand for the products of anyone tradesman unless others have obtained the requisite money by the sale of theirs. But money is only desired as a means of purchasing. The ultimate reason why sales of anyone commodity are slack, therefore, is that there is a lack of production elsewhere. The mere circumstance of the creation of one product immediately opens a vent for other products. It is true that, owing to failure to anticipate demand correctly, there may be a glut of particular commodities. But this must be paralleled by equivalent scarcity elsewhere.
‘ The general demand for produce is brisk in proportion to the activity of production.’I This way of putting things achieved a wide reception in this country, originally through its use for polemical purposes by James Mill. In the course of public discussion of the probable effects of the Napoleonic Blockade, William Spence, a writer of Physiocratic views, had published a pamphlet entitled Britain Independent of Commerce, the purport of which was to show that since agriculture was the sole source of wealth, the destruction of our foreign trade was a matter of little importance. Mill replied to this in a work entitled Commerce Defended and among his arguments there emerged an exposition of the views regarding aggregate demand to which he had already drawn attention in a review of Say’s book.2 For reasons which do not follow clearly from the main intention of his book, Spence had argued that the expenditure ofthe landlord class was an essential condition of prosperity. Were they to.save, then the lessening of aggregate demand would narrow the field of profitable employment and depression would follow.
It should be noted that he goes out of his way to dismiss hoarding as an explanation of this effect. In the first part of his critique, Mill deals with this position on Smithian lines. ‘Let not Mr. Spence be alarmed.. Let him rest in perfect assurance that the whole annual produce of the country will be always very completely consumed, whether his land holders choose to spend or accumulate.’3 But later on, warming to the controversy, he puts things Say’s way: ‘ No proposition. . . in political economy seems to be more certain than this which I am going to announce, how paradoxical soever it may at first appear … and ifit be true, none undoubtedly can be deemed of more importance.
When goods are carried to market what is wanted is somebody to buy. But to buy, one must have wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of its inhabitants? But if a nation’s power of purchasing is exactly measured by its annual produce, as it undoubtedly is … the more you extend the annual produce, the more by that very act,you extend the national market, the power of purchasing and the actual purchases of the nation. . ..’ The demand of a nation is always equal to the produce of a nation. ‘I Much the same argument reappears in Mill’s Elements. 2 It was warmly approved by Ricardo; and despite what to us must seem its glaring lacunae, it was taken very seriously by the majority of classical economists and had wide influence on thought and, if not on policy, at least on recommendations of policy.
